This morning we heard from our CEO Robert Reffkin about our vision for 2019 and how it ties into the 10 year plan for Compass. While last year we expanded across the US, opening many offices in the top 20 real estate markets and beyond, this year we are focusing on depth in these markets rather than further outward expansion.
I’m not going to spill all our trade secrets and this post is supposed to be helping renters, so I’m going to clarify something that I am regularly asked about regarding different real estate companies. Zillow and Redfin may seem similar, but they are actually completely different types of companies. Meanwhile, many of the new rental-related startups in NYC are actually more similar to Redfin in their business models than Zillow. Confused? I’ll break it down.
Zillow is the owner of StreetEasy, which is NYC specific, and Trulia, which doesn’t work in NYC. Zillow itself is nationwide. As I’ve written about before, a lot of the slimy things StreetEasy does (most notably premier agent and charging agents to post listings) come from Zillow. Zillow is an aggregator, not a brokerage. It does not employ agents. Its information does not come from the brokerage listing service, but agents separately post their listings on Zillow to get more eyes on them. Zillow makes its income by charging agents to post listings and/or to have their information shown on the site. I believe before being purchased by Zillow StreetEasy really was just changing the game in NYC by combining the most information in one space, helpful and innocuous. But now it uses programs like “Premier Agent” to drive buyers to someone who pays them rather than someone who actually represents the apartment/house. Agents have to pay $4.50/day for rental listings and $300/month for sales listings. This is new; in 2018 it was only $3/day for rentals and free for sales. It’s a way for the company to continue using money from agents to increase our dependency further to then charge us even more. I’m not a fan of this model because it seems predatory and I believe it’s backfiring; people are starting to take their listings off the site. However, to give them credit, one thing that StreetEasy does really well is show building history on their building pages. But Compass will have that in a few months so BOY, BYE!
Redfin may seem like Zillow at first glance, but it is a brokerage, meaning it employs agents and acts itself as an agent of sorts. It’s basically a discount agent/brokerage that, on the surface, seems like it would make my job harder by doing the bare minimum (since they are earning far less per transaction and it is a numbers game). But it doesn’t exist in the NYC market probably for that reason: our transactions are often very complicated and necessitate a lawyer’s involvement. Redfin’s income comes from commissions, which it gets from its agents and from buyers who go to other agents’ listings through the website, listings that come from the area listing services, like all brokerage sites (and unlike Zillow). Redfin doesn’t come into play in rentals, but it helps illustrate that two companies can be going after the same segment of the market but in different ways. They both want to have as much inventory as possible to drive traffic to their sites in order to get more money, but the way that actually works is different.
Also in “brokerages disguised as not brokerages” are companies like Loftey that target rental clients through their promise of all no fee and low fee listings. Loftey describes itself as a startup tasked with ending the era of bait and switch listings and offering lower fees. Since StreetEasy was probably the biggest game changer in eliminating bait and switch listings (I remember how brutal it was looking for an apartment when nothing was online), this is really more of a marketing line than a battle cry. I’m not saying anything negative about the company; they seem great. But having read all their recent press releases I don’t see anything particularly groundbreaking about the business model. It is a brokerage that employs agents that specialize in rentals. Like Bond, Zumper, Nooklyn, etc, they partner directly with individual landlords and large management companies who pay the company’s agents. This commission is the company’s income. So you go to them and they act as listing agents. All I will say is that they better be VERY up front with their dual agency disclosures because their interest is definitely in keeping the landlord relationships rather than building a relationship with tenants.
Pretty much every real estate startup or company you come across will fit one of these models. Either the company is an aggregator that earns money through charging for buyers/renters (“leads”) and/or hosting listings, or the company is a variation on a traditional brokerage that specializes in one thing (Redfin: discounted rates for a low-touch process, Loftey and others: NYC rentals) that earns money through its agents’ commissions.